Settlor Interested Trust for Vulnerable Person

Hi, hope someone can assist?

I am looking at a scenario where a trust is being set up for the benefit of a vulnerable person. There will be some family members who will transfer some assets into the trust, however the bulk of the assets are being transferred in by the sole beneficiary, who is the vulnerable person.

I am happy on the CGT position of the other settlors (MV transfer, no hold-over reliefs available as investment property into a VPT so is a PET for IHT purposes and not a CLT), however I am struggling to confirm that the settlor themselves won’t be charged to CGT on an effective disposal at MV on the assets he is putting into the trust himself.

I am aware that s.169D CGT1992 (where vulnerable person is the settlor) disapplies the usual rules that stop s.260/s.165 holdover relief applying on a transfer of assets into a settlor interested trust by the settlor.

"Hold-over relief

Under the general rule, hold-over relief is not available on gifts to settlor interested trusts.
TCGA 1992, s 169B]

this general rule does not apply where the settlor who has an interest in the settlement is a disabled person. This is a useful concession where a person wishes to make a self-settlement under [IHTA 1984, ss 89A] [TCGA 1992, s 169D(4)])"

However I cannot see where this confirms that holdover relief would be available as the transfer in to a VPT is a PET and not a CLT to start off with, so s.260 would not apply anyway.

Am I over complicating the situation, and the position is as simple as the settlor does not have a disposal for CGT purposes at all as the assets are not treated as leaving his estate due to the settlor interested nature of the trust and the fact he is the vulnerable person?

Many thanks

Chris Watts

Interesting point which I haven’t considered before although at the back of my mind I thought somewhere in s.260 your point would be covered.

S260(2) seems to be in essence a sort of deeming provision which would grant hold-over relief even where no IHT arose as the gift settled was a PET.

Unfortunately, on a reading of subsection (2) there appears to be no reference to a disabled trust.

My view is therefore hold-over relief is available only under s165, but not under s260.

Malcolm Finney

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The wording of the final paragraph of s.260(1) is not particularly helpful to my mind. S.169B excludes transfers to settlor-interested trusts from holdover relief under s.260, but s.169D then overrides the application of s.169B if the transfer is to a VPT and the settlor is the vulnerable person.

Does the wording of s.260(1) thus mean that s.260(3) does apply to transfers to VPTs even though such a transfer is a PET and as such is explicitly excluded within s.260(2)(a)?

The Revenue’s helpsheet (HS295) would appear to imply that holdover does indeed apply:

“Transferors and transferees that qualify for Hold-over Relief

Hold-over Relief is only available where the transfer is made by an individual or the trustees of a settlement, to an individual or the trustees of a settlement.

No relief is available for transfers to the trustees of a settlor-interested settlement. A settlement is settlor-interested if:

  • any of the following benefit in any way:
    • the settlor or their:
    • spouse
    • civil partner
    • child (minor)
    • step-child (minor)
  • there are arrangements under which a settlor may acquire an interest

This exclusion does not apply where the trust is a disabled trust or a Heritage Maintenance Fund.”

I agree with Malcolm. As the transfer to the DPT is a PET it cannot benefit from s260 hold-over. A self-settlement is presumably not a TOV at all. CG36548 confirms that it is a disposal and indicates HMRC’s view in the Table that s165 relief is possible.

Jack Harper